RBO Pilot 2013

4 Russian Business Outlook Spring 2013
News and comment

Welcome to Russian Business
Outlook, a new magazine for SMEs
and corporates in Benelux doing
business or planning to do business
in Russia. In our launch edition we
focus on trade relations between
Russia and the Netherlands.
The two countries have long-standing
links, going back to the days of Russian
Tsar Peter the Great, and today trade
relations are important with exports and
investments between Russia and the
Netherlands growing every year.
So why do business in Russia? Russias
economy is growing and it has an
emerging middle class with more
disposable income than ever before.
The economy is also diversifying, with
the authorities keen to wean it of its
dependency on oil and gas.
Evidence of that modernisation can
be seen in Skolkovo, often referred to
as Russias answer to Silicon Valley, and
which we feature on pages 18 to 20.
Skolkovo is hoping to attract both foreign
and Russian hi-tech businesses to its
futuristic hub on the outskirts of Moscow.
The Moscow city authorities have set up
the Centre for Innovative Development
(featured on pages 21 to 23) to advise both
foreign and Russian tech rms on where
best to locate, how to access government
grants and who to do business with.
But Russia is not all about Moscow and
on pages 26 and 27 we look at its third
largest city, Ekaterinburg, and how its
economy is developing.
E-commerce is a growing commercial
force in Russia and on pages 30 to 32 we
look at how this sector is set to explode
as more and more Russians go online.
One Dutchman who is helping Russians
make the most of this digital boom is Bas
Godska, a digital pioneer who moved to
Russia when e-commerce was still in
its infancy and advises rms on how to
make the most of this burgeoning sector.
Another Dutchman who is working
successfully in Russia is Jeroen Ketting,
whose company Lighthouse advises
foreign rms on setting up in the country
(pages 10 to 12). Along with Anna-Marie
Dobbelstein (pages 13 to 15), a Dutch
lawyer, they give valuable advice to
business-people planning to trade with
Russia.
A common theme emerges from the
interviews: many foreigners with no
experience of Russia still believe that it is
the out-of-control, anything-goes place
of the immediate post-Soviet period.
This is simply not the case. Russias
recent past was certainly turbulent but
its future looks set to be more stable and
the country is keen to open up.
Todays Russia ofers great business
opportunities to those willing to put in
the time and efort, and Russian Business
Outlook will be an invaluable guide. RBO
Maxim Hodak
Editorial Director,
Russian Business Outlook
Russias future
looks bright
Trade relations
are important
with exports and
investments
between Russia and
the Netherlands
growing every year
5 Spring 2013 Russian Business Outlook
News and comment
Putin and Queen Beatrix kick of Russia-Netherlands bilateral year
Russian President Vladimir Putin
made a whistlestop visit to the
Netherlands at the beginning of
April, as he and Queen Beatrix
launched the Russia-Netherlands
bilateral year.
The two heads of state launched the
cultural programme of more than 300
events at an exhibition about Russian
Tsar Peter the Great at the Hermitage
Museum in Amsterdam. Dutch
newspaper De Telegraaf also published a
letter from the Russian president where
he highlighted the historic ties between
the two countries.
The people of Russia are well aware that
the Dutch were the ones who taught
seamanship to Peter the Great; 400 years
ago Holland was a leading maritime and
trade power, and its natives left a major
imprint on the worlds history, including
Russia, he wrote.
President Putin, who was followed by
protesters angry at Russias record on
gay rights, also had talks with Dutch
Prime Minister Mark Rutte.
At a press conference following the
talks Putin emphasised the strong
trade links between the two countries.
He said the Netherlands was one of
Russias most important foreign trade
partners, with turnover between the
two countries hitting a record high of
US$ 83bn last year.
Putin added: Dutch companies are
among the leading investors into the
Russian economy. The overall volume of
capital investments from the Netherlands
is US$ 61bn. We know and understand
that this is partially the repatriation of
Russian capital, but we are grateful to
the Dutch government and our partners
for creating favourable conditions and
promoting this mutual exchange.
He said that Russian companies were
also showing more interest in working in
the Netherlands.
Russian businesses are actively entering
this market. Russian companies have
already invested US$ 30bn in Holland,
said Putin. Oil and gas are important
areas of collaborative work, but Putin
added that the two countries are
expanding into new areas.
I would like to note the dynamic
development of bilateral technology
and innovation cooperation. The well-
known and globally respected Philips
company produces medical equipment
in Russia. The Royal DSM group is
planning to launch production of
vitamin and mineral complexes.
We feel it is highly important to
strengthen contacts in science and
education, broadening student and
academic contacts. Russian and Dutch
scientists are working on joint projects
in chemical technologies, nanomaterials
and in other areas, he said.
During the visit Russias hi-tech
corporation Rostec and Dutch life
sciences company Royal DSM signed an
agreement to explore joint production
of biotechnologies and functional
materials.
The cooperation with DSM will
accelerate the process of introducing
new, unique products in the Russian
market, said Rostec deputy chief
executive Vladimir Artyakov. RBO
UK police conrm Berezovsky cause of death
as hanging with no evidence of foul play
The Russian oligarch Boris Berezovsky died as a result of hanging, a UK
police statement has conrmed.
The Russian oligarch, who had made his home in the UK, was found dead at the
end of March. There had been much speculation in the UK about the oligarchs
death, particularly in the light of the case of Russian exile Alexander Litvinenko,
who died in London in 2006 after being poisoned with the radioactive substance
polonium-210.
The statement from Thames Valley Police in the UK said: The results of the
postmortem examination, carried out by a Home Of ce pathologist, have found
the cause of death is consistent with hanging. It added that there was no sign
of a violent struggle and the bathroom, where Berezovsky was found, had been
locked from the inside.
The police said that involvement of a third party could not be completely ruled
out as the investigation was continuing but at the moment there was no evidence
to support it. Further toxicology and other tests will be carried out.
Berezovsky made his money in the post-Soviet boom years and ed to the UK
after falling out with his former protg, Russian President Vladimir Putin. In
October last year he was ordered by the UK High Court to pay the 35m legal
costs of Russian billionaire Roman Abramovich, a former business partner with
whom he was locked in a bitter dispute. The judge described Berezovsky as an
unimpressive and inherently unreliable witness.
Reports in the UK press said that after he lost the court case against Abramovich,
Berezovsky wanted to return to Russia. RBO
The Hermitage Museum in Amsterdam
News and comment
Russia agrees to restructure loan to Cyprus
Russia has bowed to pressure to
restructure a loan of 2.5bn that it
issued to Cyprus in 2011, in a bid to
ease the countrys economic crisis.
Russian President Vladimir Putin
told a press conference in Germany
during March talks with President
Angela Merkel that this was Russias
contribution to solving the economic
problems of the Mediterranean
country.
We have decided to restructure this
debt at the European Commissions
request. This is our real contribution to
solving the Cyprus problem, Putin said.
He added that he hoped the situation in
Cyprus would not be repeated.
We work on the basis that this is an
isolated incident, that such means to
alleviate crisis in the euros problem
zones will not be used again, he said.
A few weeks earlier, the Cypriot
nance minister had visited
Moscow to ask for the loan to be
restructured but had left empty-
handed.
Depositors with more than 100,000 in
their accounts will face a levy in a deal to
rescue the Cypriot economy. The deal,
agreed by the International Monetary
Fund and the European Union, initially
proposed that all customers of Cypruss
banks were to face a one-of tax, starting
at 6.75% for the smallest deposits, to
raise 5.8bn towards the cost of the
10bn bailout.
There are fears this will have a big impact
on Russian depositors, who, according
to Moodys investment agency, have
in the region of US$ 31bn in Cypriot
banks. Putin described the plan as
unfair, unprofessional and dangerous,
while Prime Minister Dmitry Medvedev
compared it to a Soviet-era conscation
of private property. RBO
Economic outlook is mixed
A panel of economists has painted a mixed picture for the Russian
economy for the year ahead.
The report from the March 2013 edition of FocusEconomics Consensus
Forecast Eastern Europe said that in January industrial production dropped by
0.8% over the previous 12 months, compared to the 1.4% expansion the previous
month. The drop was due to a decline in mining and quarrying and a slowdown
in manufacturing, the report said.
The Russian government expects industrial output to expand by 3.6% over
the whole of 2013, however FocusEconomics predicts that the increase will be
slightly lower at 3.1%.
Exports rose by 2.2% in a month
during March, the rst rise in
nine months. However, a drop
in the price of Ural oil Russias
main export commodity is
likely to curb future export
revenues.
Panellists predict that exports
will grow by 1.6% this year and
4.5% in 2014. Imports rose by
13.3% in January, the fastest
growth in 11 months. The
report predicts gross domestic
product to grow by 3.3% in 2013,
and by 3.6% in 2014. RBO
For more information go to
www.focus-economics.com
Russian parliament
approves new head of
Central Bank
Former Economics Minister
Elvira Nabiullina has been
approved as the new head of
Russias Central Bank, pledging
to bring down ination.
The State Duma, the lower house
of Russias parliament, voted
by 360 for and just 20 against
Nabiullinas candidacy, with one
abstention.
Nabiullina, who served as Russias
economics minister from 2007 to
2012, will take up her four-year
term as the countrys central
banker from June 24. Russian
president Vladimir Putins
preferred candidate, who will be
the rst female top banker in the
G8 group of industrialised nations,
replaces Sergei Ignatyev.
In a speech to parliament before
her endorsement, Nabiullina
pledged to ensure the continuity
of the Central Banks policies, but
said some changes would also
follow.
She added: As a former
economics minister, I cant help
thinking about economic growth.
The key task of the Central
Bank will be to gradually reduce
ination without choking of
economic growth. RBO
Russian Business Outlook Spring 2013 8
Compared to the poor growth seen
in European economies over the
last few years Russias economy has
been strong with its gross domestic
product in 2010 and 2011 growing by
4.3%. But last years rate was 3.4%
and experts predict that growth
will continue to slow, highlighting
structural problems that cannot be
hidden by a high oil price.
Energy is still an important part of the
Russian economy but other sectors
are starting to show their muscle.
One of the unsung heroes is the
consumer sector, a key reason behind
the relatively strong overall growth
rates. In February 2013 investment
bank Sberbank CIB published a report
saying consumer growth in Russia was
underappreciated by foreign investors.
It said that domestic consumption had
provided more than 80% of Russias
growth since 2004, and projected that
Russia would become Europes biggest
consumer market by 2020. The
Russian consumer is a mega theme
within the global emerging markets.
The individual stocks we highlight in
this report are at the sweet spot of a
tremendous combination of growth
and value, said the report. Russia is
already Europes biggest mobile phone
market and looks set to overtake
Germany as the biggest car market
within two to three years.
Steady improvements
And the country has the biggest
proportion of middle class among
Brazil, China and India the so-called
BRIC countries, according to Sberbank
CIB. About 15% of Russian households
have an income of more than US$
50,000, compared to 5% in Brazil, 2% in
China and 1% in India.
Many foreign investors in Moscow are
optimistic about the future. In general
terms the investment climate has
improved little by little the dif culties
are disappearing, said Antonio Linares,
a Spanish businessmen who is the
head of the Russian branch of Roca,
a bathroom-ttings company, and
manages some 2,500 employees in
seven factories. Linares highlighted
that the administrative barriers
from obtaining a building permit to
connecting to electricity have been
lifted in recent years. Senior managers
in companies spent 22.3% of their time
in 2008 dealing with regulations and
this gure fell to 17.2% in 2011, according
to the 2012 business environment and
enterprise survey carried out jointly by
the World Bank and the European Bank
for Reconstruction and Development.
President Vladimir Putin promised
last year that he would raise Russias
position in the World Banks Ease of
Doing Business survey from 118th place
in 2011 to 50th in 2015 and 20th by 2018.
After almost two decades of negotiation,
Russia nally joined the World Trade
Organisation in 2012, which experts
predict will stimulate competition.
Talks on the countrys accession to
the Organisation for Economic Co-
operation and Development are also
ongoing.
Russias economy may not be growing
as fast as in the past but cuts in red
tape are making it attractive to foreign
rms. Howard Amos reports
Investors optimistic
about growth
prospects
News analysis
Energy costs
But Linares warned that
some of the traditional
advantages of working
in Russia low energy
costs, low customs duties,
cheap transportation
costs and skilled labour
were fading. Energy costs
were rising, he said, and
there is an increasing labour
shortage. The problem is that
the market is getting more and
more mature and if it does not develop
the instruments to make it more
competitive and increase growth rates it
will become less attractive, said Linares.
HSBC is predicting a growth rate in 2013
of 2.5%, said the banks chief Russia
economist Alexander Morozov. A big
jump in oil prices would add 0.5% or 1%
to growth, he said.
However, the Kremlin is much more
optimistic predicting growth of 5%,
although the of cial forecast is for 3.6%.
But the impact the authorities could
have in the near term is limited, said
Morozov. Government eforts to ght
corruption and improve the business
climate would produce a positive efect
but not until next year at the earliest.
Privatisation
One of the most eagerly anticipated
processes underway in Russia today
is the states ambitious privatisation
programme. It appeared to get of to a
ying start last year when the Central
Bank sold a 7.6% stake in national
nancial giant Sberbank for US$ 5.2bn.
Top of cials insist that privatisations
are an ideological move aimed at
strengthening competition, and not
simply about raising money for the
Kremlin. About US$ 10bn worth of
assets are due to be put under the
hammer in 2013 but, as with much in
Russia, there are several contradictory
processes underway at the same time.
As government ministers talk about
privatisation, state-owned companies
in many areas of the economy are
extending their reach. The nancial
sector is dominated by the two biggest
state-owned banks, Sberbank and VTB,
which control over the half the market.
The assets held by VTB alone rose
almost 30-fold over the last decade
from US$ 6bn in 2002 to over US$
200bn in 2011.
And state-owned energy company
Rosnefts buyout of international oil
giant BP and their oligarch partners from
TNK-BP in 2012 was a clear example of
the states creeping presence in some
sectors of the economy. The liquidation
of TNK-BP, the third largest oil producer
in the country, has given the Kremlin
even greater control over the strategic
energy sector. Rosneft spent an eye-
watering US$ 55bn on the acquisition,
transforming itself overnight into one of
the biggest oil companies in the world.
BPs partnership
When BP committed US$ 8bn to the
partnership in the autumn of 2003 it
was the beginning of one the most
turbulent stories of foreign investment
in recent Russian history. BPs then-
chief executive at TNK-BP Robert
Dudley, who is now chief executive of
the BP group, was forced to leave the
country after his work visa was revoked,
executives were sued in obscure
Siberian courts, BPs of ces were raided
and a US$ 16bn deal the company
attempted to do with another Russian
oil company was blocked. But at look at
the numbers gives some perspective.
BP nally sold its stake in TNK-BP last
year for US$ 27bn. And, over the nine
years that the joint venture functioned,
BP collected US$ 19bn in dividends.
Despite all the problems, BPs initial
US$ 8bn investment in 2003 made the
company about US$ 38bn: a return
with which few would be ashamed.
The BP saga is a reminder that, despite
the persistence and patience required
to overcome the many obstacles,
serious money can be made in Russia.
It also underlines the importance of
the energy sector, and the huge value
that it generates both for private
individuals and for the Russian state.
Russia remains the biggest oil producer
in the world and the biggest exporter of
gas. Equities, political stability and the
health of the economy in general show
a close and continuing correlation to
the price of oil.
In recent years expensive state
spending programmes have meant the
government has become more and
more dependent on oil. The current
break-even oil price the oil price
at which the budget is balanced
has increased from US$ 34 a barrel in
2007 to over US$ 100 today. But since
the 2008-2009 nancial crisis the
Kremlin has been lucky and oil prices
have remained consistently high. With
undiminished consumer demand
and a reform-minded government
impressive economic growth in Russia
could be preserved for years to come.
In 2012 growth in Russia was solid
thanks to rm consumption, the
World Bank said in a February report.
Indeed the economic expansion in
Russia was faster than in Brazil, South
Korea and Turkey, something that was
unthinkable only two years ago. RBO
The assets held by VTB alone rose
from US$ 6bn in 2002 to over
US$ 200bn in 2011
In 1913 Russias economy was
experiencing the highest growth in
its history. But just four years later
the 1917 Bolshevik revolution took
place, sending Russia into meltdown.
Today in 2013, Russians are freer
and wealthier than they have ever
been before and in four years
time - 100 years after the October
revolution - Russia will have its next
parliamentary elections. Fortunately
the events of 1917 are unlikely to be
repeated and Russia should enjoy
continuing prosperity.
For the foreseeable future Russia
will remain an attractive market for
European companies. Russias gross
domestic product will continue to rise,
with growth-rates outperforming most
European countries. Unemployment
is at an all-time low and disposable
income continues to increase. Russias
fortunes are still closely tied to oil and
gas prices but that is not the entire
picture. More than half of Russias GDP
is generated by private consumption
which makes up more than 80% of
GDP growth.
Even if oil and gas prices drop, private
consumption will continue to be a
driver for economic growth. Russians
borrow little money for personal
consumption. Whereas in the
Netherlands mortgages and consumer
loans account for around 110% of GDP,
here in Russia they constitute less
than 10%. In Europe most countries
have high double-digit public debt
gures, while in Russia public debt as
a percentage of GDP stands at single
digit gures. This means that, even if
commodity prices decline, Russia still
Jeroen Ketting
shares his tips
for success in
a marketplace
which is very
diferent to the
rest of Europe
To Russia with love
Moscows expanding
nancial district
Investment opportunities
has signicant room for development
through bringing its levels of private
and public debt to average European
debt levels.
Opportunity
For foreign companies wishing to
invest in Russia this means that there
are concrete opportunities in many
diferent sectors in the years ahead. The
increase in consumer spending drives
developments in the entire value chain.
A good example is the automotive
sector: until about seven years ago
most foreign car makes were imported
but today all the major foreign car
manufacturers have production plants
in Russia. In the wake of this the entire
supply chain to car production plants
is developing rapidly. This can be seen
in other sectors of the economy as
well and there is especially impressive
growth in areas such as e-commerce,
electronics, machinery and engineering.
Maybe the most convincing argument
in favour of doing business in Russia
is the sheer number of successful
European enterprises here. Since the
early 1990s, many European companies
have established themselves and have
since built up thriving businesses.
Our company Lighthouse Russia BV
has successfully assisted hundreds of
companies (see box for example of
companies we have worked with).
Diferences
But while the benets of entering the
Russian market are clear, doing business
here is not quite so straightforward.
Everything is just a little diferent in
Russia. The market functions diferently
to the European market, Russians
negotiate in a diferent way and the
business culture is very diferent. In
the rst meeting Russians can be
very direct, they can also be imposing
and think, speak and act fast. They
do not necessarily follow an agenda
and go from one point to another at
random. Russian negotiation style can
vary from direct to evasive, friendly to
confrontational in a single meeting.
They are also less forthcoming with
information than foreigners.
Business culture
Emotion plays a big part in business
meetings and Russians generally do not
think in terms of win-win situations.
In any negotiation there is a winner
and a loser. As well as business culture
there are also administrative hurdles.
Making payments requires diferent
documentation and is subject to
limitations we are not used to. Logistics
You have to
like Russia and
Russians!
Trust, personal
relationships and
emotion are very
important in working
relationships. If you dont
like it here you will not be
able to build up strong
relationships which are so
crucial in business.
Take the time
to learn the
language
English language skills
are not widespread and
Russians appreciate it
when you know a few
words of Russian.
Learning the Russian
alphabet is not dif cult
and many Russian words
are the same in English.
Prepare well and
try to understand
the country
Dont think you have all
the answers - knowing
what you dont know
is indispensable.
Understanding the
Russian soul is also
important and as great
hosts, Russians like to mix
business and pleasure.
Jeroen Ketting shares his tips on conducting business in Russia
Foreign success stories
Booking.com, Europes leading online hotel reservations site, built a
fully functioning of ce in Moscow from scratch in just two months and
is now one of Russias most visited online reservation sites. Lighthouse
was responsible for the registration of the representative of ce, as well
as nding suitable premises and staf.
Bison, manufacturer of adhesives and sealants, had already been doing
business in Russia when it faced declining sales. We advised Bison to
change their approach to their existing distributor, rather than looking
for a new one. Bison followed our advice and sales doubled in a year.
Lighthouse helped Lutce, a rm that processes mushrooms into a
range of products, to enter into the Russian market. Based on one of the
scenarios we provided Lutce opened an of ce in Moscow, appointed a
local representative and is now successfully doing business here.
>>
Russia is a
demanding country
but you will feel
alive every minute
you are here
Investment opportunities
and customs requirements are diferent,
certication is done exclusively in line
with Russian standards and Russias
accounting system and tax legislation
cannot be compared with Europe.
A new Russia
I see many business people who make
the wrong decisions based upon an
unfounded fear of Russia. However, in
the 19 years that I have been living here
I have seen very few cases of foreigners
being exposed to violent crime.
Russia is not the country it was in the
roaring Russian 1990s, when the rule of
law was absent and the economy was in
crisis. The Russia of the 21st century is a
far more civilised place. If you prepare
well and handle your business carefully
and sensibly then you can do well here.
With good legal support in most
cases the law is on your side. Bribing is
something that should be avoided in
Russia, as in any other country. There
is no denying that corruption exists but
most people trying to bribe themselves
out of a situation nd out that they
have traded a short-term solution for a
long-term problem.
To be successful in Russia you need to
be directly involved in the day-to-day
running of your business and if you
manage it from abroad you will need to
visit Russia and your business partners
regularly.
Russia is a demanding country but you
will feel alive every minute you are here.
If you are hardworking, energetic and
entrepreneurial, this is the ideal place
to do business. RBO
Jeroen Ketting is the director and
founder of Lighthouse Russia B.V
www.thelighthousegroup.ru
>>
To be successful in
Russia you need to
be directly involved
in the day-to-day
running of your
business
Dutch rms should
seize opportunities
Russia ofers
Trade relations between Russia and the
Netherlands have never been better, says
Marieke van der Wilk, area manager for
Central and Eastern Europe at the Netherlands
Council for Trade Promotion (NCH).
Dutch exports to Russia grew by 1.7% between 2010 and 2012 and imports from Russia,
in particular oil and gas, grew by 4.6% over the same period. Because of the attractive
Dutch tax regime the Netherlands is one of the top three investors in Russia and the
Dutch government is working hard to attract Russian investments the other way. Russia
is an important growing market, says van der Wilk. It has 140m potential customers and
a growing middle class able to spend more money. Russia wants to diversify its economy
and the country ofers opportunities for all kinds of businesses from multinationals to
small and medium- sized enterprises, she says.
Russia has also signed a customs union with Belarus and Kazakhstan, enlarging the
marketplace even further. So, in theory, once you have started doing business in Russia
expanding to the two former Soviet republics should be straightforward. The Winter
Olympics in Sochi in 2014 and the football World Cup in 2018 are large investment projects
which ofer great opportunities for Dutch entrepreneurs in sectors such as architecture,
engineering, lighting and audio systems, says van der Wilk.
The investment in technology by the Russian government has been benecial to many
Dutch companies and rms. DNV Kema (a specialist in energy ef ciency), Linx Telecom
and Nedap Security Management are examples of just three Dutch companies nding
success in this sector. But a good product and a willingness to invest in the country are
not enough, says van der Wilk, and she cautions anyone who is contemplating doing
business in Russia to think long term.
Doing business takes time and you need to have a long-term policy but short-term
goals, she says. In the Netherlands we think about the next ve to 10 years but in
Russia they only think about the coming two years. This is understandable as their
history has been so turbulent, she says.
Russian and Dutch business cultures vary greatly, she says. The Russians are far more
hierarchical with only chief executives and directors making the major decisions. They
enjoy tough negotiations and like to win. Russians also mix business and pleasure,
which can be confusing for foreign business partners when their colleagues go from
being tough negotiators one minute, to inviting them to their homes and the Russian
bannya (sauna) the next.
But I think Russians and Dutch are similar in that we are both direct and look each other
in the eye when we do business, says van der Wilk. She advises Dutch companies who
want to do business in Russia to contact her organisation (NCH) and attend a seminar
or join a trade mission to the country to get an idea of how business works there. The
biggest mistake an entrepreneur can make is to think that because they already do
business in Poland, for example, then expanding to Russia will be straightforward, says
van der Wilk. Business people should learn the language, prepare well and ensure they
have a reliable business partner in the country.
The three key ingredients are patience, perseverance and a sense of humour. Doing
business in Russia is never dull and always full of surprises, she says.
For more information go to: www.handelsbevordering.nl
Legal focus
Formalistic legal system
The Russian legal system is in fact
very formal - everything has to be
documented and agreements on
foreign trade must be concluded in
writing (articles 162.3 and 1209.2 of the
Civil Code of the Russian Federation).
When referring to general terms and
conditions of sale in your contract,
make sure they are signed and sealed.
Under Russian law, it is not suf cient
to only refer to your general terms and
conditions.
For imports into Russia, a written
contract must be provided to customs
of cials, who will check the type,
quantity and price of goods. A written
agreement may also be required for the
Russian importer to present to his bank
in order to obtain a passport sdelki:
approval for a currency transaction
Dutch lawyer
Anna-Marie
Dobbelstein
shares her legal
tips for doing
business in Russia
>>
Business with a
human connection
Doing business in Russia - more so
than in the Netherlands or Belgium
- starts with trust. Developing a
relationship will take more than
one or two business meetings.
It demands time and a genuine
human connection: there may be
an invitation to a Russian home, a
late night, a few glasses of vodka,
perhaps even a visit to the sauna.
But business is also a serious process,
and even a business partner you are
on good terms with might suddenly
take an unexpected turn, plotting his
or her moves like a chess player. Be
well prepared, know where to give in
and what goals you want to achieve.
In Russia, there is no such thing as a
win-win situation, only the winner gets
respect. Finally, agreement is sealed
with a handshake.
even foreign law. Even two Russian
businesses could choose German or
English law if they wished. However,
some areas, such as labour and land
rights, are considered to be of national
importance and in these cases, Russian
law is compulsory. Many of our new
clients are unaware that a contract
with an employee working in Russia
should comply with Russian law.
This applies both to Russian and foreign
employees. Companies must apply the
correct hiring and ring regulations,
and make correct deduction of income
taxes, which, in Russia, is the obligation
of the employer. Failure to do so can
result in penalties.
Using a distributor
If you are only making incidental sales
to Russia all you need are a good
sales contract and assurance that
you receive payment in advance. If
you have regular sales to Russia and
want to develop exports there are
two options: you either set up a local
of ce or you nd a reliable distributor.
Some companies are perfectly happy
from the Russian Central Bank for
transactions over US$ 50,000. The
Russian Central Bank will check,
at random, whether the value of
imported goods corresponds to the
amount payable in foreign currency.
This is to avoid foreign currency being
transferred out of the country.
Language of contract
Russian business contracts are usually
bilingual, consisting of one column in
English and the other in Russian. We are
often asked whether it is compulsory for
the contract to be in Russian, or in both
English and Russian. In accordance with
>>
Public or private limited company
The most commonly used Russian entity for foreign businesses is the obsyestvo
s ogranitsyenoi otvetsvennosti or OOO (equivalent to a limited liability
company). An OOO can engage in all business activities, including production
and import of goods. A representative or branch of ce are not appropriate if you
are manufacturing or importing goods.
In an OOO each partner contributes a certain amount of capital. An OOO does
not issue any shares and participants are not liable for the debts of the OOO, their
liability is limited to the amount he or she originally contributed.
An alternative to the OOO is the aktsionernoe obsjestvo or AO. There is one type
for public liability companies (the open joint stock company and one of for private
limited liability companies (the closed joint stock company). An AO ofers the
same limitation in liabilities but it issues shares. These shares have to be registered
with the Federal Securities Committee. The OOO and AO are headed by a general
director with broad authorities. This could be a foreign businessman or woman, but
he or she would have to get a work permit.
Be aware that any foreign company doing
business in Russia for 30 days or longer is
required to register itself in one way or other
Russian legislation, Russian language is
the state language and must be used in
case of a transaction on the territory of
the Russian Federation.
You must remember that the
language you choose should match
the law chosen. If you choose Russian
legislation to apply to the contract,
you should use terms from this legal
system, meaning Russian terminology
and therefore Russian language. By
using English translations, you will lose
vital references to the Russian legal
system. Moreover, Russian legislation
insists that a Russian court must review
cases in Russian and consider the
Russian text of a contract. Of course,
an English translation in the document
will be useful for reference, but do
stipulate in your contract that Russian
is the prevailing language in case of any
discrepancies between the English and
Russian texts.
Choice of law
In Russia, as in Benelux countries,
parties have the right to choose the
law they wish to apply to their contract,
Legal focus
The branch of ce
Like a representative of ce, the branch
of ce is not a separate legal entity, but a
local division of the head of ce. Unlike
a representative of ce, the branch is
permitted to undertake commercial
activities, making it a permanent
establishment in accordance with tax
rules and thus liable to Russian prots
tax (20%) and other taxes. Russian tax
authorities assume that a branch of ce, as
a commercial entity, should make a prot.
The administrative burden on a branch
of ce is lighter than that of the Russian
legal entities below. There have been
exceptions where customs did not object
to the registration of a branch of ce as an
importer of limited kinds of goods.
However, in principle, a branch is
banned from importing goods. However
you choose to do your business here
it is important to keep a close eye on
it and ensure that your local staf are
doing what you want. The climate
for foreign business in Russia has
never been better: Russia has a large
population with a rising income; the
legal framework, developed to meet the
needs of a modern market economy, is
in place; and local commercial courts
- called arbitration courts in Russia -
have the independence and expertise
to judge cases involving foreign
companies. Doing business in Russia is
tough but if you work hard and prepare
well it can also be very rewarding. RBO
itself in one way or other. If you employ
people in Russia for more than 30 days
you are automatically considered as
doing business and will be subject to
registration requirements. According to
the law, a foreign company can register
directly with the Russian tax authorities
and social funds, but in practice, this
will lead to great dif culties. Therefore,
we recommend that you choose one of
the legal entities described below.
The representative of ce
A representative of ce is a Russian part
of your legal entity, not a separate legal
entity itself. A representative of ce is
for preparatory and auxiliary activities,
such as market research, nding
business contacts and promoting
products in the local market and it must
not engage in commercial activities.
As soon as a contract is in sight, the
head of ce in the home country must
take over activities. The representative
of ces limited activities mean that the
accounting and tax burden is small.
A representative of ce that does
not engage in commercial activities
will not be considered a permanent
representation for tax purposes. It
is not liable for Russian prots tax
and benets from a number of tax
advantages. These generally include
exemptions such as the following:
1. An exemption from Russian
prot tax.
2. An exemption from property tax.
3. An exemption from (18%) VAT
on the lease price of business
premises.
Russia and the Benelux countries have
signed treaties to avoid double taxation
and it is important to check these to nd
out what exemptions exist.
to carry out their Russian business via
a distributor which takes care of the
imports into Russia, sells products via
its local distribution network and may
even provide feedback from clients.
A good distributor will be able to
provide servicing for the product as
well, and can save the exporter time
and money. However, there are some
disadvantages of giving the distributor
too much autonomy: you may lose
control of your product in Russia; the
distributor knows all sales channels
and contacts; he or she may inuence
the price; and the distributors services
could have an impact on the perceived
quality of your brand.
Often, distributors have rights for the
entire territory of Russia, sometimes
even exclusive rights. We have seen
cases where a distributor abused
its rights to register GOST-R quality
certicates documents required by
law for importing certain products
- by claiming copyrights for the
translation they prepared for product
documentation. Be critical and control
your distributor.
How to set up your business
If you want to have a local presence in
the Russian market, there are various
legal entities to choose from. Some are
appropriate for limited activities such
as market research and client contact,
others allow the broadest possible
range of activities, including importing
and producing goods in Russia.
Think long and hard about what
you wish to achieve in Russia before
choosing a legal entity. How much time
and resource do you want to commit
to the Russian part of your business?
Do you have experience of exporting
abroad? What is your company
culture? And, most importantly, what
are you planning to do in Russia? We
have worked with family businesses
which prefer to control the entire
export process as it ensures that they
can maintain the same level of quality
abroad as at home. But we have also
worked with small rms who are not
equipped to manage exports to Russia
by themselves. Be aware that any foreign
company doing business in Russia for
30 days or longer is required to register
Juralink
Anna-Marie Dobbelstein is a lawyer at Juralink in the
Netherlands. Juralink is a Dutch law rm specialising
in advising companies on doing business in Russia. It
has of ces in Moscow, St. Petersburg, Amsterdam and
Ulaanbaatar.
www.juralink.nl
Think long and hard
about what you wish
to achieve in Russia
before choosing a
legal entity
When digital marketing expert Bas
Godska came to Russia in 2008
e-commerce was in its infancy.
Now, the sector is booming.
Coming into such an undeveloped
market was a bit of a culture shock,
he admits. There was a lot of
bureaucracy. The rest of the world was
miles ahead knowledge-wise in digital
marketing. People would not think
about optimisation in the same way,
nor consider the same things as those
in more mature western companies
in a more mature competitive
environment, he says.
Today, the e-commerce scene couldnt
be any more diferent. In Russia youre
a pioneer, its double-digit growth.
The e-commerce scene is absolutely
booming. There were years where it was
90% growth but the fresh internet users
that come online every year is now
estimated at 20%. And the e-commerce
market is estimated at US$ 10bn, with 17
to 20% growth a year.
Communication tools
Godskas rst job in Russia was with
Ozon, the Russian equivalent of
Amazon, where he stayed for a year and
a half but the entrepreneur was keen to
get back to his own projects and decided
to concentrate on his digital marketing
consultancy GogolMedia, which he had
already set up in the Netherlands and
Ukraine. The name for the company
comes from the Russian writer Nikolai
Bringing Dead
Souls back to life
Dutch entrepreneur Bas Godska tells Anne Gulland how he is
bringing his unique approach to digital marketing to Russia
Interview: Bas Godska
Gogol whose novel, Dead Souls, features
as its anti-hero Chichikov, who buys the
names of dead serfs from landowners
in order to claim them as his property.
While Chichikovs plan had sinister
aims, Godskas appropriation of the
name Gogol makes perfect marketing
sense. If you have a database with
email addresses and you do not use
them properly then you sit on a pile of
dead souls. If you segment the database
and use the right communication tools
to reach your audience you can bring
them back to life, he says. Since 2008
many companies have set up but the
big names in Europe and the United
States Amazon, Ebay and Google
are still relatively small.
According to the website Internet
World Stats, nearly half of people
in Russia (48%) have access to the
internet, compared to around 90% in
the Netherlands and Luxembourg, and
just over 80% in Belgium. However, the
number of internet users in Russia is
growing, with the regions beginning to
catch up with the big cities.
High demand
The internet shopping experience
in Russia is very diferent to that in
the west, where you can order your
package and expect next-day delivery
at no extra cost in most cases. Because
it is unusual for customers to pay
upfront the supplier has to pre-nance
a lot of his or her stock. Shoppers either
pay the courier or at one of Russias
ubiquitous payment terminals. And
the sheer magnitude of Russia also
presents problems, says Godska
The fact that its such a huge country
makes the logistics an issue. Here, you
have to either build your own warehouse
and courier service, or you have to work
with a whole range of local service
providers. There are a whole range of
things on the operational side which
can afect your customer service badly,
he says. The outer regions especially
are still not well served and Godska
believes that demand for e-commerce
services outstrips the supply.
Digital know-how
As well as advising companies on
e-business digital marketing, Godskas
Russian company Acrobator.com also
provides investments to new start
ups in the e-commerce, digital media,
internet marketing and mobile elds.
The demand for both his know-how
and his investment is high and he says
he gets hundreds of emails a day from
people seeking his help. Of course, not
all these people are that far advanced in
setting up a business but theres a real
demand out there for my mentoring,
he says. Some start ups require in-
depth help and advice, while others just
need a helping hand at the beginning of
their business venture.
Entrepreneurial spirit
Start-ups can seek help from foreign
and Russian investment funds but
few of these ofer Godskas in-depth
knowledge. The Russian government
also ofers grants to new businesses in
the tech sphere but, as is often the way
in Russia, the bureaucracy associated
with applying for government grants
can be deadening. So for entrepreneurs
wanting money quickly Godskas
investment is more attractive.
Despite what he calls the bureaucratic
jungle he would encourage foreign
rms to invest or set up in Russia. But
he urges foreigners to understand that
this is not the Russia of the 1990s when
anything went, and anyone who has
an idea of a wild east gold rush will be
disappointed.
If you want to do dif cult stuf come
to Russia. But do it in a modest way and
understand that this is a huge country
where the brain power and discipline
might be better than in the west. But
we were lucky in the west that we had
some time to optimise processes when
revolution, wars and socialism were
raging here, he says. The days of foreign
experts coming over to show Russians
how its done are also over, he says.
Russia is learning and in the digital
sphere it is learning extremely fast. Im
impressed with the swiftness, energy,
vibrancy of local people to embrace
best practice, he says.
The main diference in e-commerce
between Russia and the rest of Europe is
the staf everyone is a new starter and
has learned from European or American
textbooks and adapted that knowledge.
Maybe thats one of the reasons why
creatures like me are rare here because
Ive done both: adapted the knowledge
and learnt through trial and error. But
Russia never ceases to amaze me and
in ve or 10 years time Russia will lead,
he says. RBO
Bas Godska at a glance
Studied law and Russian at Amsterdam
University and then studied
e-commerce and internet marketing in
Sydney, Australia
Worked for ebookers.com and
lastminute.com
First job in Russia was with Ozon, then
moved to Russian clothing company
Gloria Jeans
Set up his own consultancy, Gogolmedia
in 2006
Co-founded Russian online travel
agency, travelata.ru
Invests in and advises 17 start ups in
Russia, Ukraine and Kazakhstan in the
internet and digital eld via his Russian
company Acrobator
In Russia youre a pioneer, its double-digit
growth. The e-commerce scene is
absolutely booming
The silicon steppe
It is often billed as Russias answer
to Silicon Valley, but while the
California home of tech giants such
as Google and Apple began life as a
bottom-up venture, the Skolkovo
Innovation Centre is very much
a top-down project, conceived as
part of the Russian governments
modernisation programme.
Skolkovo was unveiled by then
president Dmitry Medvedev in 2010
and the park itself, 19 kilometres
south west of central Moscow, is still
under construction, aiming to be fully
operational sometime in 2014 or 2015.
The futuristic-looking Hypercube is
already open and 850 start-ups have
made their home at the site. The park
will one day be home to around 31,000
workers and residents.
Scientic start-ups
Skolkovo was set up by the Russian
federal government as part of its
modernisation programme. It is seen as a
way of nurturing and keeping hold of the
countrys considerable talent in science
and technology. The government also
hopes that by encouraging new hi-tech
businesses it can wean the country of
its economic dependence on oil, gas
and other commodities.
Start ups hoping to gain residency status
at Skolkovo need to t into one of the
centres ve clusters: IT; nuclear; space;
biomedicine; and energy ef ciency. They
have to show that their product has a
competitive advantage and that is has
the potential for development. Skolkovo
residency status brings benets such as
start-up grants of up to US$ 10m.
Conor Lenihan, an
Irishman attracting
foreign rms to
Moscows hi-tech
hub Skolkovo, tells
Anne Gulland
about Russias
innovative future
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Skolkovo will be fully
operational by 2015 and is
already home to 850 start-ups
Innovation
Skolkovo start ups
>>
Skolkovo was unveiled
by then president
Dmitry Medvedev
in 2010 and the park
is aiming to be fully
operational sometime
in 2014 or 2015
Skolkovo ofers non-dilutive grant
funding to start ups but increasingly
it is moving from an incubator to
an accelerator project, says Conor
Lenihan, vice president for international
business at Skolkovo. The vast majority
of companies come to Skolkovo on the
basis that they are co-funded and we
want to match-make these companies
with foreign companies, he adds.
Presently, about 40% of start-ups at
Skolkovo come from the Moscow region,
and 60% come from outside the capital.
These start-ups will then hopefully work
with the foreign companies that have
been attracted to the site. Lenihan is the
person charged with attracting foreign
investment to the park and among the 28
big rms he has already convinced to join
Skolkovo are a host of global names such
as Siemens, Cisco, Intel and Honeywell.
Lenihan says that Skolkovo ofers them a
gateway into the growing Russian market
and its generous tax breaks take away
some of the element of risk.
Tax breaks
Skolkovo has the status of a special
economic zone and companies do not
have to pay value added tax (VAT) for
up to 10 years on prot under US$ 10m
per annum and turnover under US$
30m per annum. They pay no income
tax if the annual revenue received is no
more than US$ 30m a year. There will
also be customs exemptions for imports,
with reimbursement of customs duties
and VAT on equipment imported for
research activities at Skolkovo. Foreign
companies wishing to relocate to
Skolkovo will also enjoy fast-tracked visa
and work permit arrangements. But, says
Lenihan, the biggest attraction for foreign
rms is the talent available to them.
Russia is extraordinarlily talented in
science, technology, engineering and
mathematics. But one of the positives
from the Soviet period is that these
subjects are held in high esteem so
there is a strong supply of very high
performing science talent here, he says.
But while the legacy of the Soviet period
is one of great scientic talent, business
Vizerra
This 3D visualisation
company has developed
Revizto, a software
platform that allows
users to create and view
interactive 3D worlds.
It helps architects,
engineers and planners
collaborate in city
planning, industrial
product design and
virtual tourism industries.
Its clients include the
city of Barcelona and the
organisers of the Olympic
and Paralympic games in
2014 in Sochi.
www.vizerra.com
Primerlife
A company using crowd-
sourcing and big data
to provide people with
information and advice
about their health.
Participants take a
health quiz to determine
whether they should
have genetic testing and
build up a picture of
their family health tree.
The site also has a social
networking element to
allow people to chat to
others with similar health
conditions.
www.primerlife.com
Rockow
Dynamics
This company is one
of the success stories
of the new Russian
knowledge economy.
It already has an of ce
in Houston, Texas,
and has won funding
from Intel to develop a
piece of software called
tNavigator.
This is used in the
petroleum industry to
simulate oil and gas
reservoirs.
www.rfdyn.com
Speak To It
This is a virtual personal
assistant for people with
Android, iOS or Windows
operating systems on
their phones. The virtual
assistant performs tasks,
answers questions and
noties users about
important events.
www.speaktoit.com
Indoorgo
A Russian-Israeli
company which
specialises in navigation
systems inside large
buildings, such as
museums and shopping
centres. Visitors
downloading the
Indoorgo app to their
phone are guided
around the building
and get information on
services and products.
www.indoorgo.com
Innovation
acumen and entrepreneurialism are still
lacking. Skolkovo aims to tackle that
via SkTech which, in partnership with
Massachusets Institute of Technology
in the United States, will teach
entrepreneurialism to researchers
alongside traditional graduate research
programmes. Large companies and
big investors will look to SkTech as a
source of supply for research talent.
This research university is unique. Its
designed so that commercialisation
and entrepreneurialism are taught. Its
very hard to hothouse these values in
a traditional university which has been
around for 100 years, says Lenihan.
Russias Silicon Valley
Of course, Skolkovo has its detractors.
An article published in Russian nancial
newspaper Komersant Dyengi last
September questioned whether
Skolkovo had become just a gloried
construction project. Others have
questioned whether the vibrancy and
bottom-up nature of Silicon Valley
can be replicated in Russia. Lenihan
believes that the comparisons with
Silicon Valley are pointless and this is
not what Skolkovo set out to do anyway.
Comparing Skolkovo to Silicon Valley
is a useful shorthand but you cannot
copy what Silicon Valley has done.
Its unique, very diferent. The Silicon
innovation activity. Some 184 companies
who have received a total of US$ 300m
in grants are under scrutiny.
We could have 10 to 15% of companies
that are not performing to target or
metrics. We are drawing up criteria
to ensure that you can only stay in
Skolkovo if you innovate, says Lenihan.
Some 40 start-ups a week apply for
Skolkovo residency status so replacing
any under-performing companies
would not be a problem. Gaining
residency status is not dif cult but once
companies are there it is important that
they produce evidence that they are
working. Skolkovo has a panel of experts
who assess the applicants and they
have to ensure that their work ts into
one of the parks ve clusters.
There are researchers who become
professional at applying for grants and
status, but they dont perform when
they get here, says Lenihan. Its a big job
to axe and remove companies but were
only allowed to handle 1000 companies
at any one time so we have to make sure
theyre performing, he says. RBO
>>
Valley experience grew out of the
defence industry, the local university
presence, the information and
entertainment industry and the strong
presence of venture capital. This is a
Russian efort to bring strong values of
commercialisation as these values have
been very much absent, he says.
Some have questioned the Russian
governments support for the project,
now that Medvedev is no longer
President, but senior members of the
federal government are very much
involved, insists Lenihan.
Skolkovo has already been hit by a
corruption scandal and earlier this
year its Financial Controller, Kirill
Lugovtsev, along with a colleague,
Vladimir Khokhlov, were accused of
diverting about US$ 800,000 to a bogus
company. The fraud was picked up
by Skolkovos own internal audit so its
procedures are working, says Lenihan.
Start ups rush to join
What executives at Skolkovo are doing
now is weeding out some of the start-ups
which are not showing any evidence of
Foreign companies
wishing to relocate
to Skolkovo will also
enjoy fast-tracked
visa and work permit
arrangements
Conor Lenihan at a glance
Has a degree in economics,
history and politics from
University College Dublin
Began his career as a
journalist and in the 1980s
was political correspondent
for the Irish News
In the 1990s he launched two
radio stations one in Dublin
and the other in Prague
Comes from a political
family and his father, Brian,
was Irelands deputy prime
minister
Elected to the Irish
parliament in 1997 and served
in several governments
Held several ministerial
posts and until March 2011
was minister for science,
technology and innovation
21 Spring 2013 Russian Business Outlook Spring 2013 Russia Spring
Supporting innovation
Two decades after the end of communist
rule, Moscow authorities are determined
to make changes to the citys business
environment by getting rid of the last
Soviet industrial sites and transforming
them into hubs for new businesses in the
technology and innovation sector.
Former factories are now technoparks
and business incubators, where new
businesses and start ups receive support and
information. To help companies navigate the
maze of advice and information available, the
government has founded the Moscow Centre
for Innovative Development, an organisation
that supports innovative companies wanting
to do business in the Russian capital. Located
in the former Red October chocolate factory,
the centre is an advisory body, providing
information for both start ups and already
established companies.
The city government hopes the centre
will help Moscow become one of the
most innovative economies in the world.
According to a ranking published by
Australian agency 2thinknow Moscow is
74th in the list of innovative global cities up
from 194th in 2011. We made a good jump
in just one year, but nevertheless were not
on the top of the list, Moscows potential
is much higher, says Yury Deikun, head of
international cooperation at the centre. The >>
The Moscow Centre for
Innovative Development aims
to help the capital compete on
the technological world stage.
Yekaterina Kravtsova reports
Moscow aims
to be a leader in
innovation
>> centre encourages companies that are
interested in doing business in Russia to
move their production to Moscow, says
Deikun. Our function is to facilitate
the launching innovative projects in
Russia, so that eventually business
develops freely here and the business
environment itself encourages diferent
innovative industries.
Encouraging business
As an agency for economic
development, the centre works with a
whole range of companies: from start-
ups, to already established Russian tech
companies, to companies engaged in
more traditional business and foreign
enterprises. The centres staf gives
advice on location, documentation,
business plans and applications for
state funding. The centre also helps
foreign rms wanting to set up in Russia,
introducing them to business contacts
and eliminating administrative hurdles.
If somebody has just an idea, we can
advise where to locate their production,
what business incubator to choose,
where to rent of ces on favourable
terms. This information is useful to
beginners, Deikun says.
The Centre for Innovative Development
hopes to attract companies to the citys
19 business incubators, 39 technoparks,
eight business accelerators and other
facilities that are designed to host and
nurture innovative business projects. The
role of the Moscow government varies in
each of them: some of the technoparks
are fully state-funded organisations while
others are privately owned. It may direct
rms towards Skolkovo, the state funded
technopark, or other institutions such as
Realogic, a privately run start-up platform
for IT projects. Other state-run parks
include Rosnano, for nanotechnology
businesses; Rostech, a stage agency to
promote high-technology products; and
Rosatom, the state agency for nuclear
energy.
Funding
The Moscow centre has a purely
advisory role, but Deikun does not rule
out a grant-giving role in the future.
According to the existing legislation
we cant give grants at the moment,
but this situation is likely to change,
says Deikun. The question is whether
Moscows authorities will be ready to
risk city taxpayers money because we
are a state organisation and our sole
funding comes from the government,
he adds. Moscow does not want to
concentrate on just a small range of
innovative industries, Deikun says.
Investing in IT
But what is really experiencing a boom
in Moscow is IT which has seen an
explosion in the number of start ups.
Lots of processes are going on in
the IT industry and you can see how
people share their ideas, how they
attract investors to their projects, and
vice versa: investors are looking for IT
projects. Thousands of people work in
IT companies in Moscow, says Deikun.
The government hopes that it will
create such an attractive climate for
new industries that they will not feel
the need to relocate abroad, as has
been the case for Russias two most
successful IT companies: Yandex, the
Russian Google; and Kaspersky Lab, an
antivirus software developer. Yandex is
now headquartered in the Netherlands
and its research and development arm,
Yandex Lab, is located in Silicon Valley
in the United States.
Kaspersky is headquartered all over
Europe. Our aim is that successful
companies will keep their prot centre
in Moscow even though they may
expand their business abroad, Deikun
says. Western companies may want
to make the most of Russias technical
The Centre for Innovative Development is housed in a former chocolate factory
Supporting innovation
skills by using Russian companies for
outsourcing and hosting services,
rather than locating their business
in the country. Boeing and Airbus
are examples of two leading global
companies who have located their
engineering centres in Moscow to tap
into Russian technical talent.
Transport innovation
One of the signs that shows that Russia
is on the right track is how traditional
businesses are using innovative
technology, says Deikun, and he cites
Russian Railways as a prime example.
Established in 2003, the company, in
collaboration with German technology
giant Siemens, launched the rst Russian
high-speed train service linking Moscow
and St. Petersburg, slashing the journey
time from eight hours to four. Last year
Russian Railways entered the list of
the worlds top three largest transport
companies. Deikun acknowledges that
it will take time for Moscow to be a
leader in innovative business and foreign
experience is still very much needed.
Foreign expertise
The centre is also planning further
projects to develop innovations in the
domestic, education and retail sectors:
Smart House, Modern School and Shop
of the Future are three projects that the
centre aims to develop in the future.
Were also considering the idea of
covering the whole city with wi-, so that
people spend their time not on problems
with the internet, but on creative
processes and nding new solutions for
the IT sphere, Deikun says.
Deikun also hopes to engage with the
150,000 expats living in Moscow, who he
hopes will spread the word about the new,
innovative Russia. A poor perception of
Russia is one of the most serious barriers
for foreign companies to set up their
businesses here, says Deikun. Firstly, we
want to understand the gap that divides
reality and perception, he adds.
He warns foreign rms that setting up
production in Russia is a long-term
investment and that decisions on
funding can take years. But Moscow is
well placed as a nance and logistics
centre and can ofer much greater
opportunities for foreign companies
than other regions of Russia. He adds:
When a company comes to us with an
idea, it needs to understand that it bears
all the risk, but we can direct and advise
on diferent ways of nancing.
Some industries may require large
start-up costs and spending on
infrastructure but Deikun believes that
doing innovative business in Moscow
can be highly protable, especially in the
IT sector where investment costs are
lower than in other industries.
Moscow has a reputation for high of ce
rent costs but business incubators and
technoparks ofer residents signicant
discounts. And since last summer
a new law means that residents of
Moscows technoparks and industrial
parks will pay a prot tax of only 13.5%,
compared to the usual 20%. Residents
will also be exempt from prot tax.
But the notorious Russian bureaucracy
may produce dif culties for some
foreign companies. The problems
vary from one industry to another;
some companies may face customs
problems, while others licensing ones,
that is especially relevant for the
pharmaceuticals industry, Deikun says.
However, the centre hopes to overcome
these problems with one of its
departments working with the Moscow
authorities to analyse what legal barriers
are in place and recommend changes to
existing laws.
We have close ties with business,
we know our country and our city.
Obviously there are things that should
be changed, but nevertheless lots of
companies in Russia develop their
business either because of the current
situation or despite it, he says.
The state does still have a large role
in Russian business but the centres
approach is not to force change but to
encourage a comfortable climate for
business. And then only creativity will
dene what innovative Moscow will
look like, Deikun says. RBO
The centre also helps foreign
rms wanting to set up in
Russia, introducing them
to business contacts and
eliminating hurdles
Yury Deikun
The centre can direct technology rms to technoparks such as Skolkovo
Russian Business Outlook (RBO):
2013 is the Russia-Netherlands bilateral
year. Please tell me what this means for
the two countries and why such bilateral
years matter?
Roman Kolodkin (RK): 2013, which
has been declared the year of Russia
in the Netherlands and the Year of the
Netherlands in Russia, is important for both
countries. Bilateral years are signicant
because they enhance and expand existing
bilateral cooperation in all its diversity. It
is worth mentioning that often people call
this year just a friendship year.
RBO: How did the idea for the bilateral
year come about?
RK: The Joint Statement on having a
bilateral year in 2013 was signed during the
of cial visit of the Dutch Prime Minister
Mark Rutte to Russia in October 2011.
We saw the year as a logical step in the
development of Russian-Dutch relations
and a natural continuation of our eforts to
increase bilateral cooperation.
RBO: What is happening during the year?
RK: Many events will take place during
the year in both the Netherlands and
Russia. They will have a cultural, economic,
scientic, social and political focus. Most
importantly, we hope that during the year
the Russians and the Dutch will get closer
to each other and will get a better feeling of
todays life in the Netherlands and Russia.

RBO: What was the focus of Russian
President Vladimir Putins visit to the
Netherlands? Is Mark Rutte planning to
visit Russia in 2013?
RK: The Russian President came to the
Netherlands in April to of cially launch
the Year of Russia in the Netherlands and
Year of Netherlands in Russia, together
with Queen Beatrix of the Netherlands
in the Hermitage Amsterdam Museum.
This will be the Russian Presidents third
visit to the Netherlands. The rst one
took place in 2004, the second in 2005.
Mark Rutte will visit the 17th St Petersburg
International Economic Forum to be held
in June this year.
RBO: Do Russia and the Netherlands
have good diplomatic links? Please could
you give any examples of co-operation
between the two countries? How have
relations changed over the last 20 years?
RK: Our diplomatic relations have a long
history, and they are rapidly developing.
For instance, over the past eight years
the Russian head of state visited the
Netherlands three times while no such
visits were held between 1917 and 2004, and
together we have established an intensive
political dialogue. Six to seven times a
year high-level bilateral consultations
are held to discuss global and regional
afairs. For more than 12 years Russia and
the Netherlands have implemented a
joint action programme. This is unique in
Russian international practice and it denes
the main directions, objectives and forms
of bilateral cooperation between the two
countries, including those in the economic
sphere. The programme has become an
efective instrument for the strengthening
of ties in many areas of cooperation. It is
renewed every three years and currently
we are following the steps determined by
the programme for 2011 to 2013.
RBO: How long have you been
ambassador to the Netherlands? What
other countries have you been posted
to and how do they compare with the
Netherlands?
RK: I was posted to the Netherlands more
than three years ago. Previously I worked
in Switzerland, from 1997 until 2001, as
deputy permanent representative of the
Russian Federation to the United Nations
and other international organisations in
Geneva. It would be hard and probably not
worth it to compare any two countries in
general. I suppose that it would be more
appropriate to do it in terms of some
specic criteria. I would say that what
unites the Netherlands and Switzerland is
that they are part of Western Europe and
among the most prosperous countries in
the world.
The Russian Ambassador to
the Netherlands, His Excellency
Roman Kolodkin, tells RBO
about the importance of
the Russia-Netherlands
bilateral year
The year of Russian-
RBO: What advice would you give to a
Dutch person wanting to visit or to do
business in Russia? And vice versa?

RK: For doing business both in Russia
and in the Netherlands my advice would
be, rst of all, to nd a reliable business
partner. And of course, the Embassy of
Russia together with the Russian Trade
Representation in Amsterdam are ready to
assist where we can. For a Russian who is
planning to visit the Netherlands I would
highly recommend to come in spring to
see colourful tulip elds in bloom, which
sometimes stretch to the horizon, or
otherwise in winter to go ice skating on
the canals, if they are frozen. I would also
advise visitors not to limit themselves to
Amsterdam, which is a beautiful and a
vibrant city, but they should also go out
and explore the little old towns and villages
or islands in the North Sea. The latter
applies equally to Russia. Its territory is
vast and diverse, and travelling beyond the
borders of Moscow or Saint Petersburg is
an amazing experience.

RBO: What are the main cultural
diferences between the two countries?
And similarities?
RK: This is a very complex question but in
my opinion, the most important similarity
in the two cultures is curiosity and open-
mindedness. Peter the Great came to the
Netherlands to learn about ship-building
and both countries can boast of world
famous explorers, such as Willem Barents,
Abel Tasman, Nikolai Przhevalsky, Mikhail
Lazarev and many others. There are also
parallels in the development of modern
art in Russia and the Netherlands in the
early 20th century, between Mondrian and
van Doesburg, and Malevich and Lissitzky.
There are not so many diferences as Russia
and the Netherlands both belong to the
common European civilisation. Of course,
we have diferent languages, geography
and a diferent history which means that
we have diferences in mentally. However,
they are slowly blending due to the realities
of a rapidly globalising modern world. The
rich history that we share may be seen
as a rm bridge linking our nations and I
am very glad that the bilateral year the
meeting point on that bridge ofers a
great opportunity for Russian and Dutch
people to learn more about each other.
RBO: Many Dutch companies invest
in Russia but do the trade links work
the other way are there many Russian
companies operating in the Netherlands?
RK: Quite a few Russian companies
currently actively entering the Dutch
market. In April 2012, LUKOIL, which has
owned a 45% share of Zeeland Renery
since 2009, acquired a network of 46
petrol stations in the southern part of the
Netherlands. After rebranding, the rst
one was opened in December last year
in Maastricht and in the coming months
many more will welcome Dutch customers.
In June 2012, a subsidiary of Gazprom,
Gazprom Energy Benelux opened a sales
of ce in Den Bosch to supply gas to Dutch
companies, with the aim of capturing 15%
of the business market within ve years. An
agreement was signed between the Port of
Rotterdam and Standart TT to build and
operate a new major crude oil terminal.
RBO: Do you know how many Russian
nationals live in the Netherlands? Is it a
popular place for Russian people to live,
work and study?
RK: According to the Dutch Central Statistics
Bureau data as of January 1, 2012, there are
more than 55,000 people of Russian origin
and from the republics of the former Soviet
Union living in the Netherlands.
An impressive number of world class
universities and headquarters of many
global companies make the Netherlands a
popular place to study and work, not only
for Russian people, but for people from
other countries as well. Holland is a nice
place to live. Much of its land has literally
been created with human hands and the
country itself is well tailored to the needs
and comfort of people. RBO
For more information on the
programme for the bilateral year visit:
www.government.ru or
www.nlrf2013.nl
Interview
Dutch friendship
Founded in 1723 as a mining and
metallurgical centre, the city of
Yekaterinburg remains one of
Russias main industrial centres.
The capital of the Urals is infamous
as the place where Russian Tsar
Nicholas II and his family were
executed by the Bolsheviks in 1918
and in Soviet times the city was
blighted by heavy industry located
within its boundaries.
Today the city is keen to show how it
has moved on. Its location in the heart
of Russia has made Yekaterinburg a
major transport hub linking the west
and east of the country.
Industrial past
Traditional Urals industries such as
engineering, metal production and
defence have provided the city with
a relatively sustainable and stable
economic environment and a high
standard of living for its residents.
Heavy industry is being moved out
of the city to be replaced by a new
district, dotted with skyscrapers and
iconic modern buildings for hi-tech
companies and service industries.
Russias tallest building outside
Moscow the 188m Vysotsky business
centre - is located in the city.
This construction of skyscrapers
is of course an image-building
process to demonstrate the citys
nancial ambitions and its desire
to develop economically, says
Dmitry Chikilyov, head of Optima
Consulting, a legal and accountancy
rm. Since 2003 six business
incubators and 10 technoparks have
been established by traditional
engineering companies such as
the Ural Mining and Metallurgical
Company. Yekaterinburg has already
become one of Russias main nancial
centres with more than 90 banking
organisations, stock exchange and
venture capital funds.
Chikilyov says that despite its central
location, Yekaterinburgs distance
from important Russian and world
centres means that it used to be
isolated from the global economy.
But expansion of the internet means
distance is now less important.
Yekaterinburg and the Sverdlovsk
region in general are developing
pretty fast economically. The property
market, product market, tourism and
entertainment, and the industrial sector
are all doing well, says Alexei Toporkov,
Yekaterinburg ready
to take centre stage
The capital of the
Urals is hoping
to shake of its
industrial past
and showcase
innovation, reports
Yekaterina
Kravtsova
Regional focus
head of battery farm, Reftinskaya.
According to a ranking released in
April by Kommersant, a Russian
business newspaper, Yekaterinburg
is Russias second best city to live
in after Kaliningrad. Kommersants
index calculated data such as income,
purchasing power and production
levels. Moscow and St. Petersburg were
not included in the ranking.
Boris Zyryanov, who runs the Mikron
International Business Centre, half of
whose tenants are foreign businesses,
and heads Multiklet, a company that
designs multi-cell microchips, says he
would like to see more government
investment into innovative and creative
industries. Of cials would probably
like us to invest money into heavy
industry, but developed countries have
already gone beyond that. And were
in a situation where were far behind
Europe or America, he says.
IT stars of the future
The citys universities are at the
forefront of training the hi-tech
workers of the future. The leading
institution is the Urals Federal
University which has more than
50,000 students. In 2010, the
university created an innovative
infrastructure department whose goal
is to create an innovative business
environment in Yekaterinburg.
Zyryanov believes that Russia needs
to invest more in IT and programming
to ensure that it retains talent. There
are lots of Russians in Silicon Valley, so
if the funding is made in this sector, it
will help Russia to become a leading
country, he says.
Hosting major events
The citys desire to showcase
innovative industries has led to
Innoprom, one of the largest innovative
business fairs in Russia, which the city
has been hosting annually since 2010.
Yekaterinburg hosted its rst industrial
fair in 1887, and in 2003 the authorities
decided to revive it to showcase the
economic and business power of the
Yekaterinburg and Urals region.
Yekaterinburgs reputation for hosting
international events began in the
same year when the city was chosen
to host negotiations between Russian
President Vladimir Putin and German
Chancellor Angela Merkel. And in
2009 the city hosted the Shanghai
Cooperation Organisation summit
and a meeting between Brazil, Russia,
India and China. But two bigger
international events still lie ahead:
Yekaterinburg will be one of the host
cities of the FIFA World Cup in 2018,
and it also is one of the candidates to
host Expo 2020.
Expansion of agriculture
The agricultural sector is one of the
spheres in which government is ready
to invest, both Toporkov and Chikilyov
say. The authorities help our factory
with diferent grants and encourage us
to expand our market, Toporkov says.
The government wants traditional
businesses such as farms to innovate
so that they can produce goods not
only for the local area but the whole
country.
This month the regional government
has approved a new development
programme for our battery farm that
should help double our annual overall
production, Toporkov says. The
company is introducing equipment
produced by Dutch rms Stork and
Meyn.
Toporkov, who has headed Reftinskaya
battery farm since it was founded in 1981,
says the citys transformation has been
huge in this time. During these years
the city transformed into a large modern
metropolis, and its place in rankings
after Moscow and St. Petersburg is well
deserved, he says. RBO
Yekaterinburg at a glance
Population of 1.4m
The fourth biggest city in Russia after
Moscow, St Petersburg and Novosibirsk
Known as Sverdlovsk in Soviet times
Located in the Ural mountains and seen
as a bridge between Europe and Asia
City is keen to position itself as a
convention and conference centre
More than 280 foreign rms have
of ces in the city
Since 2003
six business
incubators and
10 technoparks
have been
established
More and more foreign students
wanting to study in English are
choosing universities in the
Netherlands. Dutch universities have
good reputations internationally and
the relatively low fees for foreign
students make it an attractive
option for many. Even students
from England are opting for the
Netherlands because of the rising
costs of UK university education.
According to the Dutch ministry
of education, the Netherlands
universities ofer around 1,500
undergraduate and postgraduate
programmes taught in English and
13% of students in Dutch universities
are foreign nationals. Among non-
Dutch students studying in the
Netherlands, German students are
the most numerous, totalling some
26,000. Chinese students rank number
two, with nearly 6,000 studying in
the country compared to around
600 Russians. However, the number
of Russians wanting to study in the
Netherlands is growing, says Zina
Santing, who, with her husband Jan and
their team, runs a website dedicated
to helping Russian-speaking students
apply to Dutch universities.
Making the website pay
Santing, who is Russian, has two
websites: www.eurogates.nl, which
ofers information to all foreign students
about studying in the Netherlands
and www.eurogates.ru, which ofers
advice specically to Russian-speaking
students. She set up the original
English-language website when she
realised that many foreign students
were coming to the Netherlands
and needed advice about the
application process. However, the
website had good traf c levels and,
demonstrating Russian tenacity and
entrepreneurialism, she started to
think of a way to make it pay.
Instead of charging students to use
the site she decided to charge the
universities on a subscription basis.
The universities are keen to sign
up because they get exposure to
foreign students without having to do
anything. Russian students can use
the site without having to pay and those
who register get a 40-minute to one-
hour free consultation where they can
talk through with Santing and her team
their application and which universities
and courses would best suit them.
Santing and her team work hard to
help the students as much as possible,
advising them on the most appropriate
universities and programmes and
ensuring their paperwork is up to
scratch. She says that Russian students
Dutch degrees
appeal to Russians
Universities in the Netherlands are turning to a Russian
businesswoman to help them attract foreign students.
Anne Gulland reports on this growing market
Zina Santing has two websites:
www.eurogates.nl, which ofers information
to all foreign students about studying in the
Netherlands and www.eurogates.ru
Education
are generally in demand in the
Netherlands. The Russian education
system has a good reputation here.
Russian students are well educated and
theyre motivated, she says.
Applying from abroad
The rst step for a Russian student is to
select a university and then a course.
Students apply online via a website
called Studielink. Then they need
to send additional information such
as their education certicates, bank
details and proof of an English-language
qualication, usually the internationally
recognised International English
Language Teaching System certicate.
When their application has been
accepted and they have been ofered
a place the university will arrange visas
and help with accommodation.
The majority of Russian students
come over to do masters degrees,
says Santing, in practical areas such as
tourism, hotel management, business
and technology. The kind of Russian
students who want to study abroad
are generally top grade students who
study hard and are ambitious, with
most staying on in the Netherlands
after graduation or going elsewhere in
Europe or the United States, she says.
Paying for courses
Studying in the Netherlands is more
expensive for students from outside the
European Union, with undergraduate
programmes starting at around 6,000
a year and postgraduate courses at
around 8,000. And this, of course,
does not include living costs.
Despite this, says Santing, the majority
of her students do not come from
wealthy families. Their parents want
the best for their children and they are
willing to pay. But if you want to study at
a prestigious university in Russia, such
as Moscow State University, that can
also be very expensive. So maybe the
diference is not that great, she says.
Scholarships are available to foreign
students and because the foreign
applicants tend to be the top students
anyway many are successful, she says.
The Russian students I see are very
intelligent and open minded, they want
to make something of their lives, she
says. Non-EU students can stay in the
Netherlands for a year after they have
graduated for what is known as a job-
seeking year. They then have to nd
a job paying an annual salary of more
than 26,000 to qualify as a highly-
qualied migrant.
The vast majority of Russian students
that Santing advises stay in the country
or get jobs elsewhere in Europe or the
United States. She believes that the
kind of Russians who come abroad
are in demand as employees because
they are hard-working, ambitious and
accept that that they have to start at
the bottom.
Even in the current nancial climate
they manage to get jobs. Russians are
so determined and employers see them
as a good prospect, she says. RBO
Ba
The Russian
students I see are
very intelligent
and open minded,
they want to
make something
of their lives
Elena Dekker says it had
always been her dream to come
to the Netherlands so when she
discovered that she could study in
English in the country it seemed
like too good an opportunity to
miss.
Dekker is from Perm where she studied
for an undergraduate degree in social
and economic geography and worked for
a couple of years in the tourism industry.
But she wanted to do a masters and she
started to look at where she could study
abroad. She came across the Eurogates
website in 2006 and, with Santings
help, chose a university, Stenden, and a
degree course, a masters in tourism and
leisure. The whole application process
took about six months, with Dekker
also successfully applying for a 3,000
scholarship. She found the Dutch
teaching style quite strange at rst.
In Russia you have to read, learn and
write down in the exam or tell your
teacher what you have learned from the
book. Here, you have to read and you
have to understand.
She also found studying a masters
degree in a diferent language dif cult
while she spoke good English she
had never had to read or write much in
English. When she rst arrived she spent
all her time studying and in the library to
keep on top of things.
She says that Russian students should
not underestimate the dif culties in
coming abroad.
I always thought living in Europe would
be easy but it was really hard at rst,
she says.
She was determined to get a job in the
Netherlands and worked hard during her
job-seeking year to nd work that would
enable her to stay. After doing jobs in
small businesses she nally found work
with a tour operator specialising in trips
for Russians visiting the Netherlands.
The experience of studying abroad
has made her more condent and self
reliant.
Studying here has been great. Before
I came I wasnt sure if could do manage
alone because at school and university
my parents had always helped me.
But I proved to myself I can do it. If I
wanted to go back to Russia with my
diploma I could probably be a director or
managing director of a company. I have
done so much here in a short period of
time, she says.
It is truly an amazing time to be working in e-commerce
in Russia now its large online population is increasingly
comfortable with online shopping, and developments in
information technology and digital media are happening at
such a rapid pace that the beating heart of digital Europe
could soon be Russia.
Although Russias online retail market does not reach US$ 15bn
per year it is one of the fastest growing markets in the world,
with annual growth averaging 25 to 30%.
In these early days of Russian e-commerce, the industry is
still held back by several obstacles, from processing online
payments and delivering parcels to hiring and training staf. But
these structural problems are being tackled.
The internet gained a foothold in Russia signicantly later than
in advanced European countries. Roughly half of the adult
population was online in 2012, compared with 80% or above
in the UK. But Russia is catching up quickly, with an average
annual growth in internet users exceeding 20% over the last
few years. In 2012, the total Russian internet audience reached
approximately 80m users (those aged 12 and above), with
more than 60m users from Russia and the remaining 20m from
among Russian speakers in rest of the world.
Russia faces explosion in
Main gures and trends
In 2011, there were 16.3m online shoppers, accounting for a
total market volume of 310 bn roubles (about US$ 10.5bn). This
gure includes air and train tickets (70bn roubles or US$ 2.3bn)
but not cross-border sales, which were estimated at US$1bn
at least. According to Russian pollsters FOM, the number of
online buyers amounted to 7m each month, with an additional
6m who researched products online before buying of ine. The
low penetration of e-commerce in Russia is, however, linked
not so much to lack of interest in online retail, but rather with a
relatively low internet penetration.
In 2011, the sales volume of online retail in Russia was similar
to that in Italy, Spain or Brazil, while signicantly behind the
United States and Europe. The share of online sales in total retail
amounted to less than 2%, compared to between 7 and 9% in the
USA and most western European countries.
The regional gap
It is important to note the fundamental diferences between
the larger cities and the rest of Russia, with Moscow and St
Petersburg being the absolute leaders in terms of market size.
Lower internet use and poorer quality internet connections in
the regions have a direct impact on e-commerce, but many other
Russia is poised to become one of the worlds biggest
online marketplaces. Here Adrien Henni,
Boris Ovchinnikov and Fedor Virin co-authors of an
in-depth report on e-commerce, give their analysis of
this booming sector
E-commerce focus
e-commerce
factors contribute to the gap: the populations lower income; less
experienced users; poorer ofers from regional e-merchants;
weaker user benets in terms of price and time saving; and
delivery problems. However, slowly but surely the regions will
account for the majority of the growth of the e-commerce
market in the forthcoming decade up to 90% in terms of the
number of new online shoppers and 60% in terms of market
value growth. This will produce a signicant shift in the structure
of the market. The regional capitals, which represented 60% of
the market at the end of 2010, will see their share of the market
decrease to under 50% by 2015, while online shoppers in the
capitals will represent less than 30% of the total.
Fulllment is key: by making their own delivery and logistics
arrangements nationally, several major Moscow-based online
retailers from Ozon.ru to Molotok.ru to Svyaznoy already
record regional sales exceeding 50%.
Online consumers
There is a strong link between income and online shopping
activity: in 2011, just 28% of people in the lowest income group
shopped online, compared to 64% among the group with the
highest income (over 75,000 roubles per month). However,
an analysis of absolute numbers shows that the lower income
group represents almost the same numbers of online shoppers
as the upper middle revenue group, while higher income groups
are in the minority.
Clothes and footwear, books, consumer electronics and computer
hardware, cosmetics and beauty products, and home appliances
are the products most commonly bought online. Among virtual
goods and services, the most popular are air and train tickets
as well as event tickets and software. On daily deal and group
buying sites which are becoming increasingly popular among
Russian online shoppers the ve types of services or goods
most in demand are: beauty services, entertainment and sports,
dining and travel. According to various surveys, online shoppers
most appreciate quick and convenient delivery, lower prices,
as well as good price and product information on the site. This
changes depending on a users income. For instance, for the high
income group cheap prices are a lower priority than convenient
delivery and trust. The very high income group chooses a web
store based on trust, returns policy and availability of products.
Merchants
A consequence of the limited size of the market itself with
Russias US$ 10bn representing about a third of Germanys
online retail market and a 20th of the US market Russian online
retailers have small sales volumes in comparison with major
foreign players. The scale is diferent: the Ozon groups turnover,
for example, is less than 1% of that of its model, Amazon.com
(using its worldwide scale), and approximately 10% of the US
giants turnover in a country such as Germany.
NA
>>
E-commerce focus
This situation also reects the atomisation of a Russian market
that is still in the early stages of development, with no more
than ten players generating US$ 100m or more in 2011. The 30
largest players combined represent a third of the total market
size (approximately US$ 3bn, not counting Amazon and eBay,
out of US$ 10bn) and the top ve account for less than 8%.
With the exceptions of consumer electronics retailers such as
Svyaznoy and Mvideo, and distance selling companies such as
the Otto group and La Redoute, major of ine players do not
yet have a large presence on the Russian e-commerce scene.
Some global companies still conduct no online sales in Russia
even though they have developed online commerce in other
countries. Others have started online experiments recently, but
with a limited range or features. Some have focused on trading
of ine, especially in the regions, many of which remain to be
conquered. A clear move toward online-of ine integration has
been noticeable over the last few years, with a number of players
involved, as exemplied by Enter.ru, a hybrid project launched by
Svyaznoy in 2012 which expects to generate hundreds of million
dollars in 2013 with a diverse range of goods including furniture,
sporting goods, childrens products and jewellery.
In certain market segments, a signicant part of online retail
anywhere from 20 to 80%, depending on the estimates goes
through unof cial schemes of varying scale, from individual
practices to large-volume grey business ventures. Grey retailers
avoid taxes to sell cheaper and maximise their prots. Six foreign
companies, including La Redoute, Yves Rocher and Lamoda are
among Russias 30 largest e-commerce names. Amazon and
Ebay do not disclose their gures. They rely on a strong local
team, take into account local dynamics from marketing to
payments to fulllment and, in certain cases, spend signicant
amounts ensuring their goods reach customers.
Cross-border trade, with international e-retailers selling to
Russian consumers, is growing, almost doubling between 2011
>>
and 2012 to US$ 2bn. Russian consumers like the greater choice
ofered by foreign retailers and enjoy virtually tax-free purchases.
But frequent bottlenecks at customs and the inef cient Russian
postal system still pose a problem.
Main industry problems
An ailing road and rail infrastructure, a developing logistics
network and Russias huge size present a challenge to anyone
wanting to deliver goods to or within Russia. To ofset these
problems major players like Ozon.ru, KupiVip.ru, Otto Group or
Wildeberries have deployed their own warehousing and delivery
processing facilities across the country. In Russia, more so than in
most developed or emerging countries, cash is still king, although
its share is slowly decreasing, both of ine and online. A plethora
of electronic payment methods are on the rise, even though they
are used only by a minority. In addition to bank cards, the use of
which is growing slowly, several new solutions appear each year,
some of which aim to create a universal means of payment.
Marketing costs are also on the rise. Whereas Western
entrepreneurs were surprised by the relatively low cost of online
marketing campaigns just a couple of years ago, the Russian
market now tends to be driven by well-funded aggressive players
bringing strong advertising budgets, leading to higher prices.
Customer acquisition costs can exceed US$ 50 per person in the
most competitive segments, like fashion.
And a shortage of qualied staf is one of the most dif cult
issues faced by the fast growing e-commerce industry in Russia.
The shortage of skilled employees on the market drives rapidly
growing salaries US$ 10,000 per month or more for certain
positions and increases competition between employers
for staf. As a result, important positions may be lled with
insuf ciently skilled employees, or left vacant for months. Some
Moscow companies try to recruit in the regions or abroad.
Long-term perspectives
According to moderate forecasts, the market size of Russian
e-commerce could reach US$ 50bn by 2020. In no case should
this gure, which represents less than 10% of Russias total retail
market, be regarded as a maximum. Further strong growth will
be fueled mainly by structural factors such as: improved delivery
and logistics, meaning that e-commerce will extend to cheaper
products; and online payments becoming more acceptable,
leading to demand for products such as insurance and holidays.
We predict that Russian e-commerce could thus represent a
market worth US$ 100bn or more within 15 to 20 years. RBO
Adrien Henni is chief editor and co-founder of East-West
Digital News. Boris Ovchinnikov and Fedor Virin are founders
of Data Insight. For more information go to www.ewdn.com and
www.datainsight.ru
These are excerpts from an in-depth report on Russian
e-commerce published by East-West Digital News in
partnership with PwC in Russia and Moscows Higher School of
Economics. Please contact report@ewdn.com
Q&A
Russian Business Outlook (RBO): Tell us
about your business.
Paula Deken (PD): Rossia Evropa Leisure
Tours and Business Travel has been
operating for 16 years and we specialise
in ofering holidays to Russian-speaking
people in Belgium, the Netherlands and
Luxembourg. We work with partners in
Russia and Ukraine and ofer guided tours,
organise hotels, transfers, concert tickets,
arrange restaurants and set up anything
that a Russian-speaking tourist would like
to do. We ofer something a little diferent
not just tours of Amsterdam but we take
tourists to other parts of the Netherlands
and the Benelux countries, like Utrecht,
Zaanse Schans and Antwerp. We also
do Russian-language walking tours of
Amsterdam twice a week which are very
popular.
I have a team of both Dutch and Russian
speakers who can help our customers with
everything they need. Russians tend not
to have as much money as other tourists
but because my company has a long
working relationship with hotels I can get
them good quality accommodation and
restaurants for a good price.
Most of my clients y here from Russia or
Ukraine they arrange their own ights
and visas and then we meet them at
the airport and they can join one of our
organised tours or we can ofer them a
tailor-made tour. I also have clients coming
from Ukraine and Ive noticed recently that
more of them are coming by car as Ukraine
is just that little bit nearer to Holland than
Russia.
As well as tourism we also organise business
travel for Russian-speaking business
people visiting Holland - incentive trips and
seminars are very popular. Holland is the
perfect place for business people as well as
for tourists because of the many historical
sites, the beautiful countryside, the tasty
herring and cycling along the canals.
RBO: How long have you been working in
Russia?
PD: I rst started working in Russia in 1978.
I studied Russian at university and got a
job as a tour guide, taking Dutch people to
Moscow and Leningrad (as St Petersburg
was then called).
We also made a lot of trips on the
Transsiberian railway: to Lake Baikal,
Chabarovsk, Irkutsk and Vladivostok. One
time I even went with a group to Mongolia
by train via Irkutsk. These trips were very
popular among the Dutch.
It was the time of the Cold War and people
in the west were afraid of Russia and knew
very little about the country. The idea
was to ofer people in the Netherlands
the chance to have a look for themselves.
We tried to help them see through the
propaganda on both sides. Of course the
Russian and Ukraine travel business has
come a long way since then. In the 1980s
Why I love
working in Russia
Paula Deken, managing director of a
travel agency specialising in tours of
the Benelux countries for Russians and
Ukrainians, has been working with Russian
companies for nearly 40 years. Here, she
shares her tips and advice for success
>>
Q&A
something done they feel they have no
choice. Dutch people are more direct and
democratic in their behaviour but we also
like to judge and think we know best. This
is a trap to be aware of. We do know our
business and thats why our clients want
to work with us, but dont judge a Russian
businessperson on your rst meeting.
Russians have their problems, but they are
far from stupid. They are tough, know what
they want and after your business meeting
you can sit down and have a wonderful
conversation about the meaning of life.
RBO: What advice would you give to a
Dutch person wanting to do business in
Russia?
PD: If you want to do business in Russia
you have to like who youre dealing with,
and as I said before, try to get to know
them, respect them and build the trust
from there. Things take a little longer when
dealing with Russia and you really have to
want to make the efort to get things done.
Things are changing with the younger
generation as they speak more foreign
languages and are more into social media
than the older generation.
Russia and Russians can be complicated
so you should seek help from people like
us who have experience, understand the
society and can advise you on how to work
with these new business contacts.
RBO: What would you recommend
someone new to Russia should visit?
PD: Moscow has some very beautiful
sites, like the Kremlin, Red Square and the
Pushkin Museum of Fine Arts but there are
so many cars that you can spend all day
sitting in traf c. The best advice in Moscow
is to take the metro. You can move around
quickly and enjoy some beautiful stations
at the same time.
St Petersburg is very beautiful and
completely diferent from Moscow. The
Hermitage Museum is unmissable and the
Peter and Paul Fortress is also worth a visit.
As a Dutch person what I really like is how
they have started planting owers along
the streets and the tramways. RBO
For more information about Paulas
travel company visit:
www.rossiaevropa.nl
know as they might not smile as much
and they dont react in the way that you
might expect, although of course you cant
generalise. But once you get to know them
they can be wonderful. Russia is a very
complicated place and you do have to
really love the country. You also have to do
your best to understand Russian people,
otherwise you will never get anywhere.
Every day your Russian partners have to
deal with problems such as bureaucracy
that we in the west cannot imagine.
RBO: What are the main diferences
between Dutch business culture and
Russian business culture?
PD: Dutch people are much less formal
than Russians that is a very big diference.
If you have a meeting the director sits
behind his desk and it can be very formal
and hierarchical.
Russian bureaucracy is also still very
dif cult so a Russian might take a shortcut
to solve a problem, which then leads to
a bigger problem. They dont take these
shortcuts because they are lazy or bad at
their jobs its just that if they want to get
when it was still the Soviet Union dealing
with Russian travel companies was more
straightforward as it was so structured.
You just had Intourist (for general travel),
Sputnik (for young people) and the Trade
Union Travel Company (for workers).
Now its a free market and were working
with lots of diferent companies. But at
Russia Evropa we do the same thing now
for our Russian-speaking visitors as we did
during the Cold War and try to show our
clients life in the Benelux. And sometimes
we also have to deal with prejudice like
before clients sometimes judge without
waiting for an explanation.
RBO: What made you want to work in
Russia?
PD: As I said I studied Russian and love
Russian people. I dont think you can work
in Russia if you dont. Russians are so deep
and you can have amazing conversations
with them. It feels as if I have been having
a 40-year conversation with some of my
business partners!
At rst Russians can be dif cult to get to
The best advice in Moscow is to take the
metro. You can move around quickly and
enjoy some beautiful stations at the
same time
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4 Russian Business Outlook Spring 2013

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